How and Why to Invest in AI
26:18 Share

Walk in the money for the rest of us. This is a personal financial on money, how IT works, how to invest and how to live without worrying about IT. And we your host, David's time, today's episode four thirty nine.

It's titled why and how to invest in A I recently on our money for the restful plus member forum. This is our premium membership community. A member wrote the following, I believe that A I could currently be underhanded.

I'm working as a software developer and use ChatGPT on a daily, almost rily basis. It's improved my productivity by roughly two and a half times. It's going to allow the automation of all kinds of business processes in the world to happen at a much faster pace than we expected.

Now that caught my attention. This software developer has been instrumental or was very influential in helping us released, providing some guide. We build out asset camp the tree released last month to help investors analyze stock index funds.

This is a developer that I trust, but at the same time, under hyped IT seems like A I and ChatGPT has gotten a lot of hype. N A, I isn't new. We've covered A I way back, first time epsom, one eighty four and twenty seventeen, and again, an episode one ninety eight and twenty eighteen.

We looked at A I and investing, including large language models in epo de two fifty six. In twenty twenty. We did take a look at ChatGPT earlier this year in january and above four seventeen ChatGPT is built on a large language model, which they train on vast amount of data.

And then it's a word predict. And somehow the idea of IT just predicts. Words seemed under whelming, and I dismissed IT. I've monitored the growth of ChatGPT, but I wasn't using IT until last week, and I was up most of the night using IT.

Now before I share how I used that, this software developer that's using IT almost hourly, I asked him, what are you doing with IT first points out that he always checks the accuracy of the output of ChatGPT because he does say things that are incorrect. But he uses IT for the monday parts of programing that aren't too complex, like data conversions or the generation data types. He says, it's like having a team of in turns at your disposal.

He uses IT to learn new coding languages or provide scaffolding for solutions that are built in these languages. He uses that to find apps and bugs in more simple code and set up, such as setting up software development environments. He is using ChatGPT to assist in writing documentation for existing code, which he says it's very good at doing that.

He points out that in all those cases as use cases, you still have to understand the code and online concepts, which is the thing about ChatGPT and other A I models. There's this fear. The're onna totally replace highly creative professionals, not yet, but a highly created professional can use ChatGPT and other AI models to improve their productivity.

And that is what has changed. And that's why it's a big deal. This is something people are actually using in their day to day work.

Otherways, this particularly developer, has used IT is to summarized blog posts that were sort of too complicated as ChatGPT to put IT in simpler languages. So what did I do with IT? Something really simple.

I asked ChatGPT, how is the row related to the fire movement? And the response was, Henry David throw, the american philosopher, writer and naturalist, lived in the one thousand nine century and is not directly related to the modern fire, financial, independent, retire early movement. There was most famous work.

Walton reflects his personal philos, simple living and self reliance, which share some principles with the fire movement. Both emphasized the natural dependence, minimalism and the pursuit of personal freedom. I followed up with, what are some quotes from throw that fire movement advocates would resonate with? ChatGPT came up with three quotes, some of which you've already heard.

One I wasn't quite sure about. IT was wealth as the ability to fully experiences life. And I asked ChatGPT for the source of that. And IT replied, I apologize for the confusion in my previous response. The quote, wealth is the ability to fully experienced live is often attributed to Henry David thro, but there is no definitive source of this quote in throws writing now that the simple conversation is like, that's not world changing. But I ask the same question to google.

And at the top of the first page of the search results, when asking how is the related to the fire movement, the top response was a journal article titled fire and fire imagery in throws journal and walden. And the second one was reconsidering, throw in a burning world. In other words, I specifically asked about the fire movement, which most people we know is financial independent, retire early, but not google.

And so IT gave me actual fire articles related to throw other things. I've spent time with ChatGPT. And as we had a very detailed discussion on those quantitative tive easing cause inflation, and we went back in fourth at one point, ChatGPT said about the money reserves that banks have.

IT wrote, if banks choose to hold onto the money rather than lending IT out, then the increase in the money supply might not actually lead to more spend. And I replied, I thought banks didn't land reserves, but that new bank loans created new deposits and increase the money supply ChatGPT replied, your correct, and I apologize if my previous explanation was unclear. In the modern banking system, loans create deposits and not the other way around.

When a bank makes alone, it's simultaneous ly create a matching deposit in the bar was bank account, thereby creating new money. Now, many times, if I made that explanation on the podcast, which most people have no idea, including many financial professionals, but ChatGPT went on the role of reserves, which can be increased through QE is more about meeting regulatory requirements and settling transactions between banks, not directly funding new loans. However, QE can still indirectly stimulate lending and spending in other ways.

And IT went through three lengthy examples about lowing interest rates can lead to more demand for loans, which can increase the money supply and the man and for good and services talked about improving the baLance sheet of banks and just encouraging spending and investment because of the lower yields and safer asset. And our discussion on on now, i've never done that with google or other search changes. A bank in forth contextually correct discussion.

Now that doesn't mean ChatGPT is perfect because its data satish training ended september twenty twenty one. So when I asked about relatively obscure designer who has had her own brand since two thousand six, elana dawson ChatGPT didn't know who that was. ChatGPT can't check the internet to do a search.

IT is based don word prediction, but think about that. Google is providing results based on authority of websites, which IT uses back links, others linking to that website to decide if that should be the top result. That doesn't mean IT knows anything about whether that top result is correct or not.

What would you rather have a search changing that, delivering results based on backlash, or a chatbot that essentially has absorb the internet hundreds of thousands of, not millions and millions of articles from authorities and put them together into this large language? Now, some of that training data, perhaps, was copyright protected. This past week, there was another lawsuit filed against OpenAI, the creator of ChatGPT, as well as meta, who has own large language model.

And the attention was that these large language models are illegally scraping data from shadow library, so libraries out on the web that contain copyrighted material. The growth in check P. P. T has been incredible. IT is jumped the chasm to where universities are really grappling with how to deal with this, because students use IT and have been using IT to help write essays, to enter questions, hopefully to help they're learning.

In some cases, basically just get the task done, which won't help learning having spent time using and I did a number of other queries and and I went ahead and signed up for an thing. It's called ChatGPT plus, a plus or pro account. I'm willing to pay twenty dollars a month, took access GPT four to the latest version and i'll use IT before I I que google if it's not something that I need the most up to date news worthy information.

I recall back in in one thousand hundred and ninety four, when the netscape browse, the first internet browser came out. At the time in my corporate finance, I was using use net to access the internet when I saw netscape, I so that this changes everything. Same when google search came out in the late nineties, when the iphone came out in two thousand, those were game changes.

And I am suggesting that ChatGPT and other large language models are game changes for productivity improvement. There's a reason why google last december issued a code red internally because of the threat to their business, because of ChatGPT. And that's a huge business.

We get dozens and dozens of queries every week from people wanting us to link to their article that they wrote on some investment related topic so that they can get more back links and hopefully be deemed as having higher authority and get in a higher ranking in google result. IT is a huge enterprise under the label search engine. Optimistic ChatGPT and other A I models are bigger in my mind, and crypto rentier, because people are using this more now within six months than a use cypher currently, or web three or defy or the metaverse.

One of the crypto tokens I own is the central land. The supposedly largest metaverse out there that insider found has only thirty eight active users compared to the hundreds of millions of users of ChatGPT in six months. The other thing that caught my attention regarding this was the financial market here. To date, the big tech companies that are expected to benefit the most from ChatGPT and other models are up over sixty percent year to date, alphabet, amazon made a microsoft NVIDIA. Meanwhile, the global stock market on an equated basis, has only returned five percent year to date through two hundred and thirty, twenty twenty three.

If people are using this, and they are and will continue to use these AI models, these large language models and other versions that can lead to greater productivity, more output per person, which can increase economic growth, because economic growth GDP is a function of the number of workers and how productive they are. Now there are skeptics. I read an article by can Fisher, who is the founder of Fisher investments.

He said they've pulled hundred of companies, and I can say its practical users today ChatGPT or overall Mandate such as efficiency gains from automating repetitive task and marketing fluff, good but not game changing. So he's skeptical. Capital economics, the chief economist, st.

Neil, sharing in a blog post that are linked to in the show notes, mentioned that they raised their two year forecast for the S P five hundred. Expect IT us dogs to appreciate fifty percent between now and the end of twenty twenty five and IT reflects the potential of artificial intelligence. As well as investor and enthusiasm around the technology's adoption in development. They believe A I, including large language models, represent a potentially massive shift in the global economic narrative.

Now one of the questions they point out, which comes to how do we invest in this, is will the benefit be concentrated in a small number of tech companies or will IT be more broad and spread throughout all economies? In one example is the the rising high productivity could lead to stronger earnings gains across maybe just technology, but all sectors they see the potential for the use of A I, effectively increasing the global supply, the ability to produce because more production or more productivity means more could be produced, which potentially could be disinflationary because inflation is caused by capacity constraints. And if A I can further relieve capacity constraints, creating more supply than that could lead to lower levels of inflation, there could be geopolitical impacts.

If china, for example, as capital economics points out, doesn't have as big of corpus of data to train these models on, will they fall behind? Or were they find other ways to integrate IT? So these are the more macro aspects of A I, the potential to increase productivity, increase economic growth, increase earnings, be distinct lation ary.

Because people are actually using IT. Still, them in orgy, just like you saw with the internet, started off slow. But this is rapping up incredibly quickly.

Before we continue, let me pause and share some words from this week. sponsors. No, knowing where mony's going in, how it's being spent helps us feel more at peace. Monarch money is a Operated all in one personal finance.

Epic gives you a comprehensive view of all your accounts, investments, transactions in more you create custom budgets like we do can track your progress toward financial goals and collaborate with your partner and now get an extended thirty day free trial. When you go to monarch, money dot comes last, David. Monarch is the most customizable budgeting APP.

You can change the layout of your dash port, and I have done that can to go between light and dark mode. I haven't done that, but you can set up automatic rules for transaction. So you, I haven't IT fix IT each and every time.

And best of all, monarch never sells your data to third parties or show your ads. After trying monarch myself, I understand why it's a Operated personal finance tap. And right now, listeners of this show will get an extended thirty day free trial when you go monarch money that comes less, David, that's M O N A R C H M O N E Y, that comes less, David, for your extended thirty day free trial.

Before we continue, let me post and share some words for one of this week. Sponsors net suite. What does the future hold for your business? Ask nine experts and you'll get ten answers. Ball market, bear market, rates rise, fall, inflation upper down. Be great if we had a Crystal ball, but we don't.

Until then, over thirty eight thousand businesses have future proved their business with net sweet by oracle, the number one cloud E R P, bringing accounting, financial management, inventory, hr into one fluid platform with one unified business management suite. There's one source of truth giving you the visibility and control. You need to make quick decisions with real time insights and forecasting.

You're peering into the future with actionable data. When you're closing the books and days, not weeks, you're spending less time looking backwards and more time on what's next. I know is our business growth we'll certainly consider using next week by oracle.

Now whether your company is aren't millions or even hundreds of millions, next week helps you respond to immediate chAllenges and seize your biggest opportunities. Speaking of opportunity, download the c phos guide to A I A machine learning at net sweet that comes less, David. The guide is free to you at net sweet dot. Come flash David. Net sweet dot com slash David.

So how do we invest in A I the first way to invest, or one of the ways, and I actually asked ChatGPT, how do individual investors invest in A I in one of the response was, invest in your own education in IT. Use IT experiment with IT. And that's the first way.

The second way is, if you have a global index when you already are investing in A I, as those top five holdings in the global stock market appreciated over sixty percent that brought up the global stock mark return is measured by the msi all country world index. IT would return roughly fifteen percent year the day it's been pulled up by A I. And that that is the benefit and efficiency of size waited or capitalization waited index funds.

Because when something does well, IT gets a larger way in the index and IT increases the performance of the index. And if this turns into more of a let's call IT a internet bubble hype, then there's a potential fall, even more of that, a much great appreciation, which would impact the overall stock market. Markets can get ahead of themselves.

What's interesting about A I is because IT takes so much training of the data and use of supercomputers and just sheer processing power, it's bigger companies that at least as far are benefiting from IT. In the video, meta, microsoft, as can Fisher wrote, it's not tiny startups in silicon valley that are driving AI. IT is the big guys and chip software, data analytics, search and more with opposition.

While IT seems tempting to get in on the ground floor, this isn't a ground floor moment. IT is impossible to identify such far, long, long term winners. If I could, I would.

But humility is vital. That's the chAllenge here. We don't know how A I will improve productivity. IT seems like IT will.

But who's gonna the beneficiary of that with the stock market? Because with the stock market, as we emphasize numerous times, the stocks that out perform are the ones that beat the consensus. They do Better than expected.

They surprised to the upside, and we don't know which ones are. And so that's why investing through an exchange trade fun in a diversified fashion is the way to participate in A I foremost, as I mention, a global index fun. And then as we look at other ways to invest, there's a framework we can use. We want to look at how diversify the etf is, how how many holdings. It's important to understand the structure.

Is that a size weight etf, so IT might have eight or nine percent in the video? Or is IT equal weight where each holding is roughly the same weight as part of that? What is the frequency of rebalancing? If you have an equal way to etf, you need to rebaLance more than if IT size waited, which means the turnover is important.

What is the annual turnovers and holdings? Lower turnover means greater tax efficiency. If I take taxi ble account, is the etf active, the actively selective holdings? Or is IT passed up where they're following a index that has specific rules in terms of how the index is created? We care about the fees, what's expenditure for the E T.

M and what is the valuation is IT very civil. IT seem more reasonably Priced in terms of a metric like the Price to earnings ratio. The plus member, the software developer was particularly interested in semiconductors because there, uh as in his words, a core component of A I, the increase in complexity of A I will require more powerful chips.

The data centres and cloud computing that run A I applications all need significant computing power. And then they, I involved in the creation of designing and manufacturing sei conductors. I agree, investing in a semi conductor etf is one way to invest in A I.

Again, that depends on whether A I is truly underhill ped. And these chip makers will do Better than expected. I believe in the video has gained over two hundred percent year.

Today will IT gain a thousand percent, you know? no. But an example of a semiconductor etf would be the I shares semiconductor etfs O X X.

This is a size weight etf. So in the video makes a eight point four percent of the etf. It's concentrated with thirty holdings overall.

It's passively manage. So it's following a ice semiconductor index and its turn of verse relatively low at eighteen percent. And the Price to earning show is is not as high as I thought I would be.

It's only twenty two. So semiconductors would be one way to invest in A I. There are also A I specific etf.

A brand new one just came out in may is the round hill generative A I and technology E T F ticker. A C H A T is seeking to invest in an actively managed way. So this is actively managed.

They're doing research, their making selections, investing in A I related companies. The expansion ation is zero point seven five percent expense ration for that semi ductor etfs. O xx is zero point three five percent.

The round generate A I and technology. E T F is size waited. IT is concentrated with thirty eight holding. So NVIDIA eight percent of the etf and its brand new. So I don't know what the turn lover is, but IT is a more of a pure play, actively managed etf.

There is also the robo global artificial intelligencer etf T H N Q century, zero point six eight percent, fifty million and assets, little more diverse, fights, seventy three holding turn covers thirty five percent. But this is more equates. So in the video as a second holding, two point two percent.

But most of the holdings in this eighth, about a two percent holding. But it's another way to play IT on a, let's say, a more diversified equated basis. But that means that if if a particular company just appreciate incredibly rapidly that they'll need to pull a back and make IT back at that two percent weight.

That approach is similar to the eyes shares robotics and artificial intelligence. Y etf ticker is I R B O. This is also passively managed. It's tracking the new ork stock's change facts at global robotics and artificial intelligence index.

Four hundred and fourteen lion dollars, zero point four percent expensive, a fifty eight percent turn over equated one hundred and twenty nine holdings. This was an etf. I mention in a plus episode, one of our premium audio episode des, that we do for plus members back in march as one way to invest in A I but they tend to be smaller companies.

So in the video is in there, but IT, basically all the companies have a one percent or so wait. So again, you don't get the benefit of the momentum that you would with a size waited. Ef, if you get some of these holdings that are up two hundred percent over six months, another equated option from eyeshades is the eyes shares, exponential technology.

E, T, F, X, T, also passively managed, equally waited, much more diverse, by two hundred and twenty two holdings. Pensa, a zero point four six percent, sixty nine percent turned over. The video is the top holding, again, one point two percent.

So even though these are effectively equally waited, they're not exact cause of two hundred and twenty two holdings, which means the largest holding though is NVIDIA at one point two percent. Now I list all of these e tf. In the show notes for the episode, the way that i'm investing in AI is foremost experimenting with IT, learning about IT, using IT understanding and understanding its economic ramifications, which i'll definitely be discussing on the podcast.

I haven't decided which of the E T. S, and probably more than one of them are invest in to participate in A I, but I plan on doing so. And I I always discuss my trades when I make changes on money for the rest of us.

Plus, I will take a reasonable position. Can Fishery, for example, is skeets tico in? And so he says, don't use A I as your entire screening mechanism.

When ever you invest in stocks, he believes a quality growth approach is best, so we don't want to go overboard. We can participate. And just owning a global diversified index, one will lie to participate.

If IT turns out A I has been under hype and its ramifications are much greater than what the market consensus reflects right now, can participate V A V T, the global refight IT index fine. But also if you want to take a more active bet in A I than investing in an etf that focuses on A I such as some that we mention their focuses on semiconductors. In my mind, that is the way to play IT because we do not know which of those thirty two hundred companies are going to surprise to the upside.

Some of them will, some of them will dip point, new ones will come along. But it's a wait to participate in the sector and benefit from what appears to be an A I revolution. We ll see.

I'm more excited about this that I am about crypto current, your web three. I spend a lot of time of web three and I just it's neat, but i'm not using IT everyday software. Developers are not using IT everyday in their work.

Educators are not using IT everyday. Students are not using web three every day, but they're using A I, and they are using ChatGPT and other models. I think the capital to do so, and I believe it's a game changer, that's why we should invest discussed how to invest without going overboard.

That episode four thirty nine. Thanks for listening. I have loved teaching you about investing on this podcast for over nine years.

Some topics though I just Better explained in writing or with the chart. And that's why we have a weekly free email newsletter, the insiders guy in that newsletter. I share charts, grass and other materials that can help you Better understand investing.

It's some of the most important writing I do each week. So I spent a couple hours on that newsletter on wednesday morning as I tried to share something that will be helpful to you. If you're not on the list, please subscribe, go to money for the rest of us dot com to subscribe to the free insiders guide weekly email news letter. Everything i've shared with you in the subsidies for general education, i've not considered your specific risk situation, not provided investment advice, this is simply general education on money invested in the economy. Have a great week.